On February 26, 2019, the Ninth Circuit affirmed much of a jury’s approximately $11M verdict finding that a former general counsel was discharged in retaliation for reporting alleged Foreign Corrupt Practices Act (“FCPA”) violations.  Wadler v. Bio-Rad Labs., Inc., No. 17-cv-16193.

Background

Sanford Wadler, then the former General Counsel of Bio-Rad Laboratories, Inc. (the “Company”) filed whistleblower retaliation claims against the Company and its CEO under SOX and Dodd-Frank, along with a wrongful termination claim against the company under California common law.  Wadler’s claims were premised on his allegation that he was discharged for submitting a memorandum to Bio-Rad’s audit committee asserting FCPA violations.

The district court denied the Company’s motion to dismiss after the SEC filed an amicus brief arguing that Dodd-Frank prohibits retaliation based on internal complaints, and the case proceeded to trial.  On the eve of trial, the Company filed a motion to exclude evidence it claimed was shielded by the attorney-client privilege.  The SEC submitted another amicus brief, arguing that federal whistleblower laws are designed to protect all employees of public companies from retaliation, and preempt California’s ethical rules that generally prohibit attorneys from disclosing client confidences.  The motion was denied and a trial was held over several weeks in January and February 2017.  On February 6, 2017, the jury found in Wadler’s favor on each of his claims and awarded him approximately $11M, including $2.96M in backpay, which was doubled under Dodd-Frank, and $5 million in punitive damages under his California public policy claim.  An appeal to the Ninth Circuit followed.

Ruling

The Ninth Circuit upheld the award of damages with the exception of the award of double backpay under Dodd-Frank, recognizing that the U.S. Supreme Court in Digital Realty Trust, Inc. v. Somers, No. 10-1276 (2018), held that Dodd-Frank does not protect purely internal complaints (discussed here).  However, the Ninth Circuit vacated the verdict as to the SOX claim, concluding that the jury instructions erroneously listed the FCPA’s anti-bribery and books-and-records-provisions as “rules and regulations of the SEC” under SOX Section 806.  The court explained that those provisions are not “rules or regulations” of the SEC under Section 806 of SOX because Congress’s use of the phrase “rule or regulation” in conjunction with an administrative agency (the SEC) suggests it was only intended to encompass administrative rules or regulations.  This interpretation was supported by Congress’s use of that phrase in the same list of unlawful activities (in Section 806 of SOX) as violations of “Federal law relating to fraud against shareholders,” which suggests there is a difference between the meaning of a “law”—which encompasses statutes (like the FCPA)—and a “rule or regulation”—which does not.  The Ninth Circuit ruled that the district court erred in instructing the jury otherwise, and that the error was not harmless with respect to the SOX claim.  It remanded the case for consideration of whether a new trial is warranted and directed the district court to consider whether any retrial would result in a double recovery given the portion of the decision affirming the California public policy verdict and the corresponding verdict for compensatory damages for past economic loss.  Notably, the Ninth Circuit did not address the district court’s ruling allowing the use of privileged information at trial.

Implications for Employers

The Ninth Circuit’s narrow reading of what constitutes an SEC “rule or regulation” will make it more difficult for plaintiffs to show they engaged in protected activity under SOX.

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Photo of Steven J. Pearlman Steven J. Pearlman

Steven J. Pearlman is a partner in the Labor & Employment Law Department, where he is Head of the Restrictive Covenants, Trade Secrets & Unfair Competition Group and Co-Head of the Whistleblowing & Retaliation Group.

Employment, Whistleblower, Restrictive Covenant and Trade Secret Practice.

Steven J. Pearlman is a partner in the Labor & Employment Law Department, where he is Head of the Restrictive Covenants, Trade Secrets & Unfair Competition Group and Co-Head of the Whistleblowing & Retaliation Group.

Employment, Whistleblower, Restrictive Covenant and Trade Secret Practice. Steven’s national practice focuses on defending companies in federal and state courts and arbitration against claims of: discrimination, retaliation and harassment, including claims brought by high-level executives; whistleblower retaliation; restrictive covenant violations; theft of trade secrets; and wage-and-hour violations (including class, collective and PAGA actions).

Illustrating his versatility, Steven has successfully handled bench and jury trials in multiple jurisdictions (e.g., Illinois, California, Florida and Texas); defended one of the largest Illinois-only class actions in the history of the federal courts in Chicago; and prevailed following his oral arguments before the Seventh Circuit and state appellate courts. Steven brings his litigation experience to bear in counseling clients to minimize risk and avoid or prepare for success in litigation.

Investigations. Reporting to boards of directors, their audit committees, CEOs and in-house counsel, Steven conducts sensitive investigations and has testified in federal court. His investigations have involved complaints of sexual harassment involving C-suite officers; systemic violations of employment laws and company policies; and fraud, compliance failures and unethical conduct.

Thought Leadership and Accolades. Steven was named Lawyer of the Year for Chicago Labor & Employment Litigation in the 2023 edition of The Best Lawyers in America. He was also named as One of the Top 10 Impactful Labor & Employment Lawyers in Illinois for 2023 by Business Today. He is a Fellow of the College of Labor and Employment Lawyers. Chambers describes Steven as an “outstanding lawyer” who is “very sharp and very responsive,” a “strong advocate,” and an “expert in his field.” Chambers also reports that “He is someone who can navigate the twists and turns of litigation without difficulty. Steven is great with brief-writing, crafting arguments, and making sure the client is always happy.”

Steven was 1 of 12 individuals selected by Compliance Week as a “Top Mind.” Earlier in his career, he was 1 of 5 U.S. lawyers selected by Law360 as a “Rising Star Under 40” in the area of employment law and 1 of “40 Illinois Attorneys Under Forty to Watch” selected by Law Bulletin Publishing Company. Steven is a Burton Award Winner (U.S. Library of Congress) for “Distinguished Legal Writing.”

Steven was appointed to Law360’s Employment Editorial Advisory Board and selected as a Contributor to Forbes.com. He has appeared on Bloomberg News (television and radio) and Yahoo! Finance, and is often quoted in leading publications such as The Wall Street Journal.

The U.S. Chamber of Commerce has engaged Steven to serve as lead counsel on amicus briefs to the U.S. Supreme Court and federal circuit courts of appeal. He was appointed to serve as a Special Assistant Attorney General for the State of Illinois in employment litigation matters. He has presented with the Solicitor of the DOL, the Acting Chair of the EEOC, an EEOC Commissioner, Legal Counsel to the EEOC, and heads of the SEC, CFTC and OSHA whistleblower programs. He is also a member of the Sedona Conference, focusing on trade secret matters.

In 2024, Steven received the Excellence in Pro Bono Service Award from the United States District Court for the Northern District of Illinois and the Chicago Chapter of the Federal Bar Association.

Photo of Lloyd B. Chinn Lloyd B. Chinn

Lloyd B. Chinn is a partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative…

Lloyd B. Chinn is a partner in the Labor & Employment Law Department and co-head of the Whistleblowing & Retaliation Group. He litigates employment disputes of all types before federal and state courts, arbitration tribunals (e.g., FINRA, JAMS and AAA), and before administrative agencies in New York and across the country. Lloyd’s practice ranges from litigating compensation disputes to defending whistleblower, discrimination and sexual harassment claims. Although he represents employers in a wide range of industries, including law, insurance, health care, consulting, media, education and technology, he focuses a substantial portion of his practice on the financial services sector. He has tried to final verdict or arbitration award substantial disputes in this area.

Due to Lloyd’s litigation experience, clients regularly turn to him for advice regarding the full range of employment matters, including terminations, whistleblower policy and procedure, reductions in force, employment agreements, and employment policies. For example, in the wake of the financial crisis, he has counseled a number of firms through reductions in force and related bonus and deferred compensation disputes. Lloyd has also been retained to conduct internal investigations of allegations of workplace misconduct, including claims leveled against senior executives.

Lloyd has represented global businesses in matters involving Sarbanes-Oxley and Dodd-Frank whistleblower claims. He has taken an active role in the American Bar Association on these issues, currently serving as Co-Chair of the Whistleblower subcommittee of the ABA Employee Rights and Responsibilities Committee. Lloyd has spoken on whistleblowing topics before a numerous organizations, including the American Bar Association, ALI-ABA, Association of the Bar of the City of New York, and New York University School of Law. He has testified twice before Congressional subcommittees regarding whistleblower legislation and has also published blog postings, articles and client alerts on a variety of topics in this area, including the Dodd-Frank Act’s whistleblower provisions. Lloyd is a co-editor of Proskauer’s Whistleblower Defense Blog, and he has been widely quoted by on whistleblower topics by a number of publications, including the New York Times, the Wall Street Journal, the National Law Journal and Law 360.

Lloyd has also become active in the International Bar Association, presenting on a variety of subjects, including: the #MeToo movement, the COVID-19 pandemic and employment law, and cross-border harmonization of employment provisions in transactions. Lloyd also hosts a quarterly roundtable discussion among financial services industry in-house employment lawyers. He has also published articles and given speeches on a variety of other employment-law topics, including non-solicitation provisions, FINRA arbitration rules, cross-border discovery, e-discovery, and the use of experts.